Rhode Island General Treasurer Gina Raimondo’s public pension reforms were a template for other states around the country. Now the changes are being derailed in court. The Wall Street Journal examines Raimondo’s current situation here
In February, Ms. Raimondo and Governor Lincoln Chafee announced a deal with labor leaders to avert a trial. The proposed settlement maintained most of the reform’s structure but reduced the retirement age to 65 from 67 and allowed employees who have worked at least 20 years to keep their defined-benefit pensions. Public-safety workers were exempt from the hybrid plans but had their retirement age reduced to 50 from 55 and contributions increased by 2% of pay. Support from a majority of the legislature and each of the six classes of litigants was necessary to seal the deal.
Ms. Raimondo triumphantly declared that the compromise preserved 94% of the reform’s projected savings while union leaders claimed a symbolic victory because they forced the treasurer, who is running for governor, to the negotiating table. More than 70% of the 6,755 workers and retirees who cast ballots supported the deal. But a majority of police officers voted nay and sank the settlement. State and labor leaders have called off talks, and the judge has scheduled a trial for September 15, which is one week after the state’s primary elections.
State and labor leaders are under a gag rule, but we suspect labor leaders were never negotiating in good faith. In October the unions released a “forensic investigation” by pseudo-analyst Ted Siedle titled “Wall Street’s License to Steal” that accuses Ms. Raimondo of bilking pensioners to “enrich herself and her hedge fund backers.” Mr. Siedle told the Providence Journal that “the lesson of the failed settlement agreement is there shouldn’t be mediation with a liar.”
Unions are probably hoping that the litigation will doom Ms. Raimondo’s campaign for governor. They may also be gambling that they can avoid any benefit reductions if they prevail in court. However, this is a bet they can’t afford to win. The reforms have saved state and local governments $400 million this year alone and thousands of jobs. The reforms are the only barrier between many cities and bankruptcy when pensions could be slashed. Central Falls cut pensions by up to 50% in its 2011 bankruptcy.
While Judge Taft-Carter has opined that pensions are contractually guaranteed, the state’s Supreme Court has never ruled on the issue and federal courts have said states can impair contracts in certain circumstances. Whatever happens in court, the larger political lesson for government reformers is that public unions will never compromise until they are defeated in court and at the ballot box.